Backdoor roth IRA question. Still have tIRA balance.

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Slow Play
Posts: 10
Joined: Tue Feb 09, 2016 8:54 pm

Backdoor roth IRA question. Still have tIRA balance.

Post by Slow Play » Mon Feb 11, 2019 11:26 am

Bogleheads,

I have a few questions that I wasn't specifically able to find answers for and I am hoping you can help me with.

Situation: I maxed my 2018 Roth IRA via monthly contributions ($5,500). However, I made more than I thought I did and am completely ineligible to have contributed so I know I need to withdraw my 2018 contributions + any earnings. I would like to do a backdoor Roth IRA for 2018 (if possible). I currently have a tIRA with a balance that I am in the process of rolling into my current employers 403B in order to get a zero balance. I have been reading the White Coat Investor's extremely detailed process of how to backdoor Roth and am unsure if I can backdoor for last year since my Dec. 31st 2018 balance in the tIRA was not zero.

Can I:

1) Withdraw 2018 Roth IRA contributions + earnings.
2) Contribute $5,500 to my tIRA (once the current balance is rolled into my 403B)
3) Convert tIRA to Roth IRA

Any issues with this or is my best bet to just withdraw 2018 contributions + earnings and clear my tIRA space to backdoor for 2019?

If I am able to still backdoor for 2018, can I contribute $11,500 ($5,500 2018 + $6,000 2019) and do the conversion all at once to include my 2019 backdoor Roth?

Thanks for any assistance.

nolesrule
Posts: 971
Joined: Thu Feb 26, 2015 10:59 am

Re: Backdoor roth IRA question. Still have tIRA balance.

Post by nolesrule » Mon Feb 11, 2019 11:37 am

To avoid Pro-rata the IRA must have a zero balance on December 31st in the year of the conversion. The tax year of the contribution is not relevant for this part of the backdoor Roth.

There are no limits on number of conversions in a year or how much you can convert. Since you are planning to do the conversion in 2019, you have until Dec 31st 2019 to clear out the existing TIRA balance.

You will need to fill out a 2018 Form 8606 to report the non-deductible contribution (after recharacterization). Your 2019 Form 8606 will record the non-deductible 2019 contribution and any conversions, and will calculate any taxes due on the conversions.

Someone else will have to provide guidance on how to handle the recharacterization as far as tax reporting is concerened, since I do not have any experience.

Silk McCue
Posts: 2035
Joined: Thu Feb 25, 2016 7:11 pm

Re: Backdoor roth IRA question. Still have tIRA balance.

Post by Silk McCue » Mon Feb 11, 2019 11:49 am

FYI - lots of threads on this very subject over the past couple of months so this is not unusual.

1) Have your custodian Recharacterize your 2018 Roth to a tIRA which you will treat as non deductible. Do not withdraw the Roth and earnings. That is counter productive.

2) The date for having $0 in a tIRA is the end 12/31/2019 not 2018. That is a common misconception. The calendar year that the Backdoor is performed is what matters, not what year the tIRA is designated for.

3) Perform the conversion on the entire balance of the recharacterized tIRA to Roth. You will owes taxes for tax year 2019 for any gain above what was originally contributed.

4) Complete the rollover of the existing tIRA and make certain you have no balance in any tIRA on 12/31/2019.

Cheers

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